International oil prices fell slightly from their high levels as investors took profits. Oil prices hit their biggest gain in more than two months as EIA crude inventories fell more than expected, coupled with growing optimism about an international trade agreement, and the possibility that OPEC+ was preparing to discuss extending the production reduction agreement until the end of June.
The market will pay attention to the meeting of OPEC and its allies on supply policy this week. Currently, Iraq has given up calling on OPEC and its allies to deepen production cuts. The sudden U-turn by OPEC’s second-largest oil producer, combined with silence from Saudi Arabia and its Gulf allies, has left oil markets wondering what the group is plotting ahead of a key meeting in Vienna on Thursday.
EIA crude oil inventories fell more than expected, However, refined oil inventories have increased significantly
At 23:30 Beijing time on Wednesday, data released by the U.S. EIA showed that as of the week of November 29, U.S. commercial crude oil inventories excluding strategic reserves fell by more than As expected, refined oil and gasoline inventories both increased more than expected. In terms of production, U.S. domestic crude oil production fell by 00,000 barrels last week to 12.9 million barrels per day. After the data was released, U.S. oil prices remained basically stable at daily highs in the short term.
Specific data shows that U.S. EIA crude oil inventories decreased by 4.856 million barrels, compared with an expected decrease of 1.486 million barrels, and the previous value increased by 1.572 million barrels. In addition, U.S. EIA gasoline inventories increased by 3.385 million barrels, which is expected to increase by 1.47 million barrels, and the previous value increased by 5.132 million barrels; U.S. EIA refined oil inventories increased by 3.063 million barrels, which was expected to increase by 327,000 barrels, and the previous value increased by 725,000 barrels.
U.S. weekly inventory data intensified the bullish atmosphere, with U.S. EIA crude oil inventories falling more than expected, which together with a surge in crude oil demand from refineries offset the impact of increased gasoline and distillate inventories. The market seems to view the increase in crude oil inventories as a more important surprise than the increase in refined oil inventories.
The increasing demand from OPEC and other members to further restrict supply confirms our concerns about slowing demand; if an additional 400,000 barrels per day is cut, the reduction will be rose to 1.6 million barrels, and stricter production cuts will further boost market sentiment; if the production reduction agreement is extended for six months to the second half of 2020, the situation in the oil market will be clearer.
Will OPEC maintain its current production capacity? The production cuts are expected to be extended to the end of June
Given the uncertainty of the market outlook, OPEC is unlikely to agree to modify the production agreement this week. The head of the agency’s oil markets department said OPEC was likely to take action as it has often done in the past: delaying a decision to change the current system until the situation becomes clearer.
There are many uncertainties at present, especially the prospects of US shale gas, strong demand, overall economic prospects, etc. They are likely to maintain the status quo and meet again in March next year. Unless OPEC further cuts production in 2020, global crude oil inventories will increase significantly and oil prices will fall accordingly.
Bank of America analysts stated in a research report that OPEC+ will extend the production reduction agreement for another three months to June 30 at the meeting in Vienna from December 5th to 6th. According to Bank of America’s aggregate supply and demand forecasts, even if production cuts are extended, there will still be a supply surplus of 770,000 barrels per day in the first half of 2020, and a supply gap of 390,000 barrels per day in the second half, forcing OPEC+ members to better comply with the agreement. This could lead to a further reduction of 430,000 barrels per day in production, mainly from Iraq, Kazakhstan and Russia. OPEC and Russia’s average daily production will be 40.6 million barrels in 2020 and 41.5 million barrels this year.
The current production reduction agreement may not be able to maintain a balance in the oil market and keep oil prices in a stable range in 2020. If OPEC cannot agree on further production cuts, the outlook for oil prices will be extremely bleak. It is expected that by the first half of 2020, the global oil market will be basically oversupplied, reaching 800,000 barrels per day.
Data shows that an oil surplus of 1 million barrels per day will cause oil prices to fall by about 5% per month, which means that oil prices may fall by 30% in the next 6 months. If OPEC and Russia do not extend and deepen production cuts, Brent crude oil prices may fall to US$40 per barrel in a relatively short period of time next year.
Iraq gives up calling on OPEC+ to deepen production cuts
Iraq has given up on calling on OPEC and its allies to deepen production cuts. Oil Minister Ghaban said he is inclined to extend the current production limit for one year. Garban said at the end of last week and at the beginning of this week that OPEC+ would consider increasing the existing production cuts by about 400,000 barrels per day to 1.6 million barrels per day.
The sudden U-turn by OPEC’s second-largest oil producer, coupled with silence from Saudi Arabia and its Gulf allies, has left oil markets wondering what the group is planning ahead of a key meeting in Vienna on Thursday.
Since the beginning of this year, the OPEC+ alliance has been implementing production cuts of about 1.2 million barrels per day to eliminate excess and boost crude oil prices. The deal is set to expire at the end of March and ministers must decide what to do next.
Intensifying production cuts may be what the market (especially Saudi Arabia) needs in 2020. Demand growth is slowing, and rivals are likely to expand production significantly again. The combination of these factors may once again lead to oversupply, causing international oil prices to fall towards US$50 per barrel.
For most OPEC membersThe price was too low for the country to balance its budget and an unfortunate end to Aramco’s record-breaking initial public offering. Iraq’s Ghadhban discussed the possibility of cutting production by 400,000 barrels per day.
Nonetheless, before this week, the vast majority of analysts and traders surveyed believed that an extension of the existing production agreement was the most likely outcome. Although Iraq has the worst performance among major oil producers in implementing the current supply agreement, it has bravely pushed for deeper production cuts, sparking speculation that OPEC may surprise.
OPEC crude oil exports from Middle East oil-producing countries fell in November
OPEC Crude supplies from OPEC’s Middle East producers, excluding Iran, fell to their lowest level since July as ministers gathered in Vienna to discuss the next steps in their deal with allies to curb output.
Tanker tracking data shows that in November, Saudi Arabia, Iraq, Kuwait and the United Arab Emirates, which together accounted for nearly 70% of OPEC production, exported an average of 14.79 million barrels of crude oil and condensate per day. This is a decrease of 970,000 barrels per day from October and is the lowest level since July.
Saudi Arabia’s exports in November fell back to the level before the attack on oil processing facilities in September. Compared with October, the daily average dropped by 680,000 barrels to 6.63 million barrels, a decrease of 9%. Kuwait’s average daily exports fell by 220,000 barrels per day in November, a drop of 11%, and exports fell to the lowest level since tanker tracking data began to be compiled in October 2016. The UAE’s daily exports fell by 145,000 barrels, or 5%, last month.
The export volume of Iraq’s Basra oil terminal was 3.45 million barrels per day, an increase of 74,000 barrels from the previous month. Exports remain more than 200,000 barrels per day lower than in September as the country struggles to get production closer to targets under the OPEC+ deal.
Recent concerns about the global economy and trade tensions are the main factors limiting the rise in oil prices. With the decline in crude oil exports from Middle Eastern oil-producing countries in November, it helps to improve investors’ understanding of the supply faced by the oil market. The glut situation may further intensify pessimistic expectations, thus supporting oil prices.
(U.S. Oil Daily Picture)</p
